Earnings Preview: Bristol-Myers

Bristol-Myers Squibb Company (BMY) is slated to report its third quarter 2010 earnings on Oct. 26, 2010 before the bell. The current Zacks Consensus Estimate for the third quarter is 53 cents per share, representing a year-over-year growth of 2.1%. Bristol Myers has surpassed earnings estimates consistently in the last four quarters with a trailing four-quarter average of 5.21%.

Second Quarter Recap

Bristol-Myers’ second quarter 2010 earnings (excluding special items) of $0.54 per share surpassed the Zacks Consensus Estimate by a penny. The company had earned $0.48 per share in the year-ago quarter.

On a reported basis, Bristol-Myers’ earnings in the reported quarter climbed 20% to $0.53 per share. The rise was attributable to cost control, lower taxes and strong sales of its lead product Plavix and therapies indicated for HIV and hepatitis.

Although net sales in the second quarter climbed 2% to $4.77 billion, sales were lower than the Zacks Consensus revenue Estimate of $4.86 billion. The healthcare reform enacted earlier in the year negatively impacted net sales in the reported quarter by 1.5%.

USnet sales in the second quarter climbed 4% to $3.1 billion. However, international sales slipped 2% year-over-year to $1.7 billion, despite a 1% favorable foreign exchange (Fx) impact.

The jump in net sales was primarily attributable to strong sales of Plavix, an anti-platelet blood thinner indicated to reduce the risk of heart attack in patients with atherosclerosis (the build-up of plaque and hardening of the arteries), and Baraclude for treating hepatitis B virus. In addition, Bristol-Myers reported robust sales of HIV treatment drugs Reyataz and Sustiva.

Apart from releasing the second quarter results, Bristol-Myers reaffirmed its previously issued guidance for 2010. Bristol-Myers continues to expect 2010 earnings (excluding special items) to range between $2.10 per share – $2.20 per share. The company also maintained its 2010 reported earnings projection range of $1.84 to $1.94 per share. The 2010 guidance assumes a mid-single-digit revenue growth.

Agreement of Analysts

Estimate revisions for Bristol-Myers have been scarce over the past week and month. Over the past 30 days, only 2 of the 18 analysts covering the stock have reduced estimates for the third quarter, with an equal number moving in the opposite direction. However, we believe that the loss of revenues that will arise at Bristol-Myers due to the loss of exclusivity of key drugs has resulted in a more pronounced downward revision of 2010 estimates. Estimates for 2010 have been revised downwards by 8 analysts with only 1 moving in the opposite direction over the last 30 days.

Even though we remain concerned about the generic threat hanging over the pharma giant’s key products including Plavix, we are pleased with the measures taken by Bristol-Myers to counter the loss of revenues. The diversity and strength of the company’s businesses should ensure strong growth ahead.

Magnitude of Estimate Revisions

Estimates for the third quarter of 2010 have remained static at 53 cents over the last 30 days due to a lack of significant estimate revisions by the analysts following the stock. Estimates for 2010 have been revised downwards by 1 cent to $2.14 over a similar time-period.

Our Take & Recommendation

Currently, we have a Zacks #4 Rank on Bristol-Myers (short-term Sell rating) highlighting near-term pressure on the stock due to the genericization of key drugs. Our biggest concern regarding the company is its high exposure to generic risk on many of its leading franchises.

However, the company has already taken measures like the extension of the Abilify agreement with Otsuka, the acquisition of ZymoGenetics and Medarex to combat the threat of generics hanging over it. Moreover, the company intends to launch five compounds — apixaban, belatacept, brivanib, dapagliflozin and ipilimumab — by 2012.

However, given the present scenario, we believe the ipilimumab launch could occur before 2012. The new launches are expected to drive growth in 2013 and beyond. Consequently, the more stable long-term outlook prompts us to have a Neutral stance on the stock in the long-run.

BRISTOL-MYERS (BMY): Free Stock Analysis Report

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